California Requires Solicitors to Register as Lobbyists and Prohibits Contingent Compensation

The State of California has passed legislation that (a) requires third party placement agents and solicitors for public funds to register as lobbyists and (b) prohibits receipt of contingent compensation. For purposes of the new law, “placement agent” includes a “finder, solicitor, marketer, consultant, broker, or other intermediary in connection with the offer or sale of the securities, assets, or services of an external manager to a public retirement system in California for compensation.” Registration as a lobbyist triggers various information reporting requirements. Although a placement agent registered with the SEC or FINRA may receive payments “for contractual services provided to an investment manager,” the placement agent may not receive payments contingent on the investment of a public plan with the manager. Violations of the new law carry criminal penalties.

OUR TAKE: In effect, the law eliminates solicitation arrangements for California public plans. Also, consulting, legal, and audit firms must be careful to avoid classification as a lobbyist.

http://www.assembly.ca.gov/acs/acsframeset2text.htm